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Hops Farming Feability-study-pages-1-10
- 1. Assessing the Feasibility of Small Scale Hops Farming in British Columbia, Canada Part 2 of 4 for the project entitled: “The current feasibility and working business models for smallscale commercial hop farming in BC.” Prepared for: Persephone Brewing Company Prepared by: Hop Yard Collective FRASER VALLEY HOP FARMS Oceanic Plaza - 1066 W Hastings St. Vancouver, British Columbia, V6E 3X2 info@fraservalleyhopfarms.com Toll Free | 1.888.756-9274 www. fraservalleyhopfarms.com TECHNICAL REPORT 1 FEASIBILITY STUDY
- 3. 2 EXECUTIVE SUMMARY This technical report is the second part of a fourpart project entitled The Current FRASER VALLEY HOP FARMS INC,. Feasibility and Working Business Models for SmallScale Commercial Hop Farming in BC. The four parts are: 1. Assessing the current market for BC grown hops 2. Assessing the feasibility of small scale hops farming in BC 3. Developing a business plan template for a small scale commercial hop yard 4. Performing outreach and communication of the findings from this project This project is funded in part by the Investment Agriculture Foundation, and attempts to build off of Left Fields Farm’s Small Scale and Organic Hops Production manual. The purpose of this report is to assess the feasibility of growing hops at a small scale for sale to British Columbia’s craft breweries in order to inform prospective hops farmers in BC (Canada). This report will examine the marketing, production, technical, and financial feasibility for growing hops under three different scenarios for 1, 5, 10, and 20 acre farms. Under all scenarios, revenue is generated from the sale of hops. The three scenarios are 1. Grower in a Collective Growers Program (CGP): A collective of farmers who grow and pool hops together under one brand. The collective is facilitated by an “enterprise” that is responsible for the processing, packaging, marketing and distribution of the hops through a revenue sharing agreement with the farmers. 2. Independent grower selling whole hops 3. Independent grower selling pelletized hops
- 4. 3 With the rapid growth in the craft beer industry, research indicates a strong potential market for BC grown hops amongst BC’s craft breweries provided the quality of these hops meet brewers’ specifications. From the brewers’ perspectives, processed, or pelletized, hops are preferred for the brewing process. While several varieties of hops in high demand amongst breweries are proprietary and cannot be grown by farmers in BC at this time, several varieties including Cascade and Centennial are in demand and, among other varieties, are being grown successfully in BC. As quality and consistency are vital for hops farmers in securing longterm purchasing contracts, the production process must yield a product that meets brewers’ specifications. Small independent farms may not have the crop yields to meet even a single small brewery’s demand for hops, thereby limiting this prospective target market. By pooling hops of like varieties from multiple small scale hop farms, grower’s collectives or “value share” collectives have the potential to achieve the capacity necessary to meet brewers’ demands while smoothing out any inconsistencies in the hops through the blending process to create a consistent product that better reflects the standard profile for that hop variety. Processing technology is available for hops farms of all scales. Picking, processing and packaging equipment is required for independent farmers selling pelletized hops, which means higher startup capital costs when compared to farmers operating within a Collective Grower’s Program (CGP) or independent farmers selling whole hops. Of the scenarios examined, farms operating as an independently and selling pelletized hops and farms operating as part of a Collective Growers Program were considered the most financially feasible provided the farm is at least five acres in size. At this scale, it is estimated to take approximately seven years or less to become profitable. The revenue potential increases proportionately with the size of farms. The independent farmer selling pelletized hops has the potential to be the most profitable of the scenarios, but has the highest startup capital requirements and financial risk.
- 5. 4 The financial feasibility of growing hops on a smallscale farm depends on the farmer’s objectives. If the farmer’s goal is to maintain a modest lifestyle with a modest income, then growing 5 or 10 acres in a collective growers program may make sense. For those with greater access to land and capital seeking a more lucrative venture, an independent 10 or 20 acre farm selling pellets directly to brewers is a more appealing scenario. Growing and selling whole hops only appears to be unfeasible given brewers’ preferences and low revenue potential. Regardless of the business model selected for growing hops, there is significant opportunity for the hops industry to grow in BC. As the projection for craft beer sales are expected to maintain rapid growth, the opportunity for growing hops will continue grow as well.
- 6. 5 INTRODUCTION WHAT ARE HOPS? Hops are one of the principle ingredients in the beer making process and provide the balance to the beer that often gives the beer its signature. These “spices” are responsible for providing the beer with hop aroma, bittering and hop flavour. Although many of the same varieties of hops are grown in different parts of the world, hops are often characterized by their location in addition to their variety, having what wine makers call “terroire”. Hops are a herbaceous perennial vine and are members of the plant family Cannabinaceae (Kneen, 2004). Hops are native to temperate zones of the northern hemisphere and are most commonly found between the 30th and 50th parallels (Kneen, 2004). These plants typically live over 25 years and take approximately 4 years to fully establish. An established hops plant can grow up to 6 m high and is able to produce upwards of 2 pounds of dried hops per plant in ideal growing conditions (Kneen, 2004). During the spring, the hops bines start growing at a fairly rapid rate, sometimes as much as 30 cm per day. Once the plant has reached its maximum height, it begins to produce clusters of hops that typically mature between late summer and early fall, which is when they are picked, processed, and ready to be used for making delicious craft beer. Hops can be used in their whole form or as pellets. Pellets are the most commonly used for commercial brewing, as many brew houses are not equipped to use whole hops in the brewing process. Rebecca Kneen’s Small Scale & Organic Hops Production1 provides a wealth of information and guidance on the practice of growing hops.
- 7. 6 HISTORY OF HOPS IN BC The earliest cultivation of hops in BC dates back to 1862 when farmers in Saanich, just north of Victoria, began growing hops to sell to local brewers. A shortage in other countries allowed big profits in BC, and interest spread to other parts of the province. In the Chilliwack area, the industry continued to grow until the 1940’s when nearly 2,000 acres were under cultivation, with 4,000 people employed during the harvest each year. At its peak the Fraser Valley represented the largest hopgrowing region in the entire British Commonwealth. But after World War II, the industry began shrinking, and in the 1950’s, the farms began using mechanized pickers, which ended the need for large numbers of workers. Declining, too, was the actual size of the industry, which now had to face the competition of the massive hop production of the Yakima and Willamette Valleys, in Washington and Oregon to the south. The province’s major corporate owned breweries were buying cheaper hops almost exclusively from Washington State’s heavily subsidized hops industry. Fewer and fewer farmers chose to grow hops until the last of the great Fraser Valley hop farms closed down in 19971 . CURRENT TRENDS Hop farming in BC was essentially nonexistent in BC after 1997 until Left Fields Farm began growing hops organically in Sorrento BC. Since then it has been estimated that as many as 20 small scale commercial hop farms have either commenced or are soon to commence operations in BC2 , including Eagle Valley Hops (Shuswap, BC), Bitterbine Hops (Lillooet, BC), Squamish Valley Hop Company (Squamish, BC), the Sartori Cedar Ranch and the Chilliwack Hops Company (Chilliwack, BC).
- 8. 7 Industry trends indicate a large and rapidly expanding market opportunity for BC grown hops. Within the last decade, the craft beer industry in North America has been booming. In 2013, the US experienced an 18% increase in craft beer sales despite a decrease in overall beer sales of 2%. In addition to growth in market share, craft beer prices also increased by 2.3% (DENCBC, 2014). Craft beer in BC has been booming as well. A recent article in the Vancouver Sun stated: “B.C. has been adding about a dozen new craft breweries a year during the past five years, growth that is mirrored south of the border, where at least 1,000 craft breweries have opened across the United States in that period3 ” In BC, craft beer’s market share accounts for nearly 15% of all beer sold according to the Craft Brewers Association of British Columbia (now BC Brewers Guild), who maintain that brewers are experiencing sales growth between 15 and 20% per year. Since 2007, breweries that produce less than 160,000 HL per year have experienced a 140% increase in sales4 , as sales have almost tripled from approximately $60.5 million to $169.6 million (Figure 1). Coupled with the boom in craft beer sales, the number of microbreweries in BC has boomed as well. In 2012, there were roughly 55 microbreweries breweries in BC, in 2013 that number grew to 64, and this year already there are 22 more breweries in BC, bringing the total number of breweries to more than 855 . By the time this report is published that number will likely have changed.
- 9. 8 MARKET RESEARCH METHODOLOGY Research was conducted to investigate the market opportunity for selling BC grown directly to BC craft breweries using a combination of desktop research, online surveys and telephone interviews. Detailed methodologies and findings are presented in Technical Memo #1: The Current Market for BC Grown Hops2. FINDINGS For complete research findings see Technical Memo #1: The Current Market for BC Grown Hops2. Summary of Desktop Research Desktop research shows tremendous growth in BC’s craft beer industry (see Introduction – Current Trends). New startup craft breweries continue to come online every year in BC. In his book “Craft Beer Revolution – The Insider’s Guide to BC Breweries”, author Joe Wiebe admits that his 2013 book was “outofdate the moment it was published”. Summary of Interview Results All of the interviewees, except one, indicated that they would support locally grown hops and pay a premium for BC hops if specifications and quality requirements were met. Many of the responses on “local hops” were in relation to the local food movement and supporting local BC farmers. One respondent noted that their support for local products was based on enhancing the resiliency of local economies.
- 10. 9 For price, there was a general consensus from all brewers that they would pay a premium for BC grown hops. It was estimated that the current prices of imported hops range from $5 to $17 per pound. One respondent noted that they would pay double the price for Cascade hops grown in and another noted that they would pay $15 per lb (also for Cascade). In general, quality of hops and meeting brewers’ specifications was the top priority for brewers. One respondent noted that brewers needed to be consistent with their beer, thus, require a consistent quality in their hops. Another respondent noted that the quality of hops previously sourced from a small scale hops farm in BC has been an issue; however, they would still purchase local hops if quality specifications were met. On the subject of varieties, a number of brewers noted “the big C’s” (Cascade, Centennial, Columbus and Chinook) as varieties of interest. Organic hops appeared to be not as important as interviewees noted that organic beer or hops are not a major selling point for their product. Summary of Survey Results 64% of respondents had brewed with BC grown hops at a commercial scale, and 100% of these would do it again if the quality of hops was the same or better. 45% currently do not have access to a source of good quality, BC grown hops. Of those respondents that currently do have access to a source of good quality BC grown hops, 67% indicated suppliers are not able to consistently meet their demand for the product. Of breweries that source their hops directly from a BC farmer or from their own farm operation, 67% of respondents indicated this represented 05% of their annual supply of hops.